Whether it is canceling the Keystone XL pipeline or obstructing new permits for oil and gas projects on federal lands, President Biden appears to be adopting California’s approach to addressing the problem of global climate change. If fully adopted, there will be large economic consequences with little net environmental benefit.
Let’s start with the environment. Total greenhouse gas emissions (GHG) in the U.S. declined 10% between 2007 and 2018 (see the chart below). Not only is it likely that emissions continued declining in 2019, but initial estimates indicate that an even steeper decline occurred in 2020 due to the Covid-19 stay-at-home orders and reduction in economic activity.
With respect to the long-term decline in GHG emissions, the substitution of power generated by natural gas for power generated by coal has been a major contributor. As the U.S. Energy Information Administration (EIA) noted, the decline in GHG emissions is due to “more efficient natural gas-fired generation [replacing] coal-fired generation”. The EIA notes that generation from renewable energy, especially wind and solar, were also contributors to the decline.
This historical experience demonstrates that the best way to reduce GHG emissions is to embrace an “all of the above” energy strategy. Obstructing the production and distribution of natural gas is not an “all of the above” strategy. California demonstrates the adverse consequences that will follow. Policies that increase the price of natural gas, and obstruct its production and distribution, reduce economic growth, and impede reductions in GHG emissions.
California imposes numerous taxes and regulations on fossil fuels that include cap and trade regulations, carbon taxes, and renewable energy mandates. Nevertheless, emission declines in California have been around 35% less than the national decline, in part because the state continues to shutter its nuclear power plants.
As for the economic consequences, California’s electricity prices are among the highest in the country, its gas prices are the highest in the country, and its cost of living is the second-highest in the country. Those who live in California’s poor, rural, minority and inland communities have been hit hardest by these expensive energy mandates with rising energy costs and few job opportunities. Many Californians are clamoring to leave the state altogether. Between July 2018 and July 2019, California lost nearly 200,000 residents (on-net) due to people migrating to other states such as Nevada and Texas.
Opponents of an all of the above strategy claim that alternative energies will be ready to power the global economy within the next 20 to 30 years. Undoubtedly, advancements in wind and solar have been impressive, and there is a growing role for these technologies. There are also important limitations.
Neither wind nor solar power is dispatchable – power cannot be increased (or decreased) on demand. These power sources generate power when the wind blows or the sun shines. If our battery storage capacity could smooth the gap between when these sources generate power and when we need this power to be available, then the role for wind and solar could increase. But, we have not yet overcome these technological constraints.
It is also uncertain which technology will power the future. This uncertainty could become material should President Biden follow the Obama Administration’s example and increase the subsidization of politically favored technologies. The failed Crescent Dunes 110-MW solar plant, which went bankrupt in 2020 owing nearly $1 billion in federally guaranteed debt, exemplifies this problem. As described by Bloomberg,
“In 2011 the $1 billion project was to be the biggest solar plant of its kind, and it looked like the future of renewable power. Citigroup Inc. and other financiers invested $140 million with its developer, SolarReserve Inc. Steven Chu, the U.S. Department of Energy secretary at the time, offered the company government loan guarantees, and Harry Reid, then the Senate majority leader and senior senator from Nevada, cleared the way for the company to build on public land. At a Washington celebration of SolarReserve’s public funding, Chief Executive Officer Kevin Smith told the assembled politicians, “We’re proud to be doing our part to win the future.” (emphasis added)
Beyond wasting $1 billion, the Crescent Dunes’ failure is depriving the region of reliable power and puts upward pressure on energy prices, which will harm the economy and disproportionately burden poor- and working-class families.
Discouraging the production and distribution of natural gas exposes the entire economy to the risks that result when the technologies that everyone knows are the “future of power” fail to meet expectations.
These risks are even less justifiable because power sources such as natural gas and nuclear can safely deliver affordable and reliable energy while emitting significantly less GHG emissions (or in the case of nuclear, zero emissions). The lost economic and environmental benefits are significant costs that will be felt regardless of the future viability of solar and wind power.
Unfortunately, President Biden’s initial actions demonstrate that he will bring the California approach to Washington D.C. His actions to discourage the production of natural gas will cost the U.S. economy thousands of jobs. Without a course correction, these losses are just the beginning.